With the Russian invasion of Ukraine, the global economy has come down. What is the actual economic consequence of the Russia-Ukraine war? Well, the UNCTAD reports a devastating one per cent drop in projected global economic growth this year.
“There is a rapidly worsening outlook for the world’s economy and to think that this year, the average rate of growth of the world economy will be 2.6 per cent, down from 5.5 per cent last year, and down from the projections that were made in the last quarter of 2021,” said UNCTAD Secretary General Rebeca Grynspan. She said this in the wake of the latest UNCTAD’s latest global economic update.
“We anticipated back in September of last year that the global economy would grow by around 3.6 per cent. We expect it to grow by 2.6 per cent this year and of course, the main contributing factor to that, is the war in Ukraine,” said UNCTAD Division on Globalization and Development Strategies Director Richard Kozul-Wright
TRILLION DOLLAR DEBT
Inflation is on the rise. Developing countries that are already weighed down by a one trillion dollar debt burden to pay back to creditors, are fighting it hard to meet the challenges. The developing nations are finding it hard to withstand exchange rate instability, rising interest rates and soaring food and fuel prices. Meanwhile, the UNCTAD in the economic update has called for wholesale multilateral fiscal reform – possibly on the scale and ambition of the US Marshall Plan that shouldered Western Europe following the Second World War – to improve the financial liquidity of developing countries to prevent them – and even middle-income countries – from potentially going under.
EMERGENCY MEASURES CALL
Calling for “emergency measures from the IMF and World Bank“, Grynspan noted that activation of rapid funding instruments which IMF can provide would help countries with looming balance of payments problems.
Noting that conditions are worsening for everybody, the UNCTAD chief pointed out how the climate crisis has played its part, along with successive droughts in the Horn of Africa, the ongoing COVID-19 pandemic and war in Ukraine. Even relatively wealthy countries that are struggling with multiple cost-of-living pressures, have already sought help from the international system to keep them afloat. “Pakistan went back to the IMF) at the end of last year,” said Kozul -Wright. “Sri Lanka has now gone to the IMF to organise a programme. Egypt, which was already under a programme, has gone back to the IMF to renegotiate. And these are countries – these are not least developed countries, these are middle-income countries that are under very serious economic and in some cases political pressure, as a consequence of the shocks that they now face”
The UNCTAD says exchange rate instability and surging commodity prices, particularly for food and fuel are the two immediate impacts of the Russia – Ukraine war. However, it is the world’s poorest import-dependent countries that will be worst-hit by the global economic downturn, the UN agency said. “The brunt is being carried by the developing countries because of the rise in prices of food, of energy and fertilisers that is very steep and also the financial stretch under which the developing countries are already under,” said Grynspan,
Although all regions of the global economy will be adversely affected by this crisis’ Kozul-Wright, suggested that “high commodity exporters” were likely to do well from a rise in prices, “But the European Union will see a fairly significant downgrade in its growth performance this year..so will parts of central and southern Asia as well,” he said.
UNCTAD’s policy recommendations include the need for global financial reform to allow developing countries the economic space for reasonable growth” so that they can service potentially crippling debt levels. “Debt servicing in 2020 for developing countries excluding China was already $1 trillion, that was the kind of financial pressure that developing countries are in,” Richard Kozul-Wright said.
“We know and we have argued in the past that the initiatives from the G20, the Debt Service Suspension Initiative is welcome, we welcomed it, but it was clearly insufficient, it provided something of the order of $11 billion for the countries that were eligible,” he said.
The economic, financial and political reverberations from the war are unfolding at a turning point in global policy discussions, as the supportive public policy stance necessitated by the pandemic gives way to fiscal and monetary tightening. In the advanced economies, central banks are beginning to raise interest rates from historic lows and selling some of the assets they purchased during the decade of quantitative easing. Budgetary authorities, having issued large volumes of government debt during the pandemic, are turning their focus to reducing primary balances by raising taxes and cutting spending.